Price Spreads from Farm to Consumer
Food processors, manufacturers, wholesalers, retailers, and
foodservice providers transform raw agricultural commodities
into the convenient food products that American consumers want
to buy. Transportation, processing, and packaging are among
the many marketing services provided. Value added to commodities
through marketing services accounts for a substantial portion
of consumer food prices.
ERS compares the prices paid by consumers for food with the prices received by farmers for their corresponding commodities. ERS's goal is to inform policymakers, agriculture, and the general public about the value added to agricultural commodities by the food marketing system, and compare costs for marketing commodities with farm receipts. The data product Price Spreads from Farm to Consumer has two parts:
1. Farm Share of All Foods or Marketing Bill
The marketing bill provides a composite estimate of the value added to agricultural products by the food marketing system for all types of food, including both at-home and away-from-home foods. The contribution of the food marketing system is also broken down into the portions attributable to labor, packaging, and other major marketing inputs.
In 2006, 19 cents of every dollar spent on U.S.-grown food went to the farmer for the raw food inputs, while the other 81 cents covered the cost of transforming these inputs into food products and getting them to grocery store shelves and restaurants.
2. At-Home Foods by Commodity Group
ERS compares farm and retail prices for specific food items as well as commodity groups. For example, ERS compares the retail price of milk with the price of an equivalent amount of raw milk at the farm gate. Also, individual foods are grouped into market baskets. These baskets contain a collection of foods that represent what an American household may buy at retail in 1 year’s time. The costs of the market baskets at retail are then compared with the prices received by farmers for a corresponding basket of agricultural commodities. Grouping foods into baskets yields not only data on milk, but also a composite estimate of the value added to farm milk by the food marketing system for all dairy products.
Changes in a food product's farm share and farm-to-consumer price spread are the result of changes in mix and prices of services required to transform raw agricultural commodities into consumer food products. They therefore reflect a variety of underlying economic conditions, including changes in the technology used to process and distribute food as well as changes in the price of inputs, such as labor and energy. The data do not measure farm profitability or income. Changing consumer preferences for food products can also drive the food marketing system to add more or less services to the commodities grown by farmers.
Value added by the food marketing system is largely independent of farm prices, as when consumer prices have held steady or risen in the face of a decline in farm prices. Over the years, consumer prices have tended to rise, regardless of whether farm prices were rising or falling. As a result, the farm share has tended to decline for most foods, while farm-to-consumer price spreads have widened.
Changing consumer preferences are likely to explain much of current trends. A changing workforce—more women and more two-income households—means that busy consumers are demanding quick, easy-to-prepare convenience foods. Modern cooking technology, such as microwaves, continues to play a role as well. Grocery stores are even taking convenience a step further by offering prepared entrees and side dishes ready for the oven, microwave, or even the dinner plate. All of these factors have likely affected the services needed to transform agricultural commodities, contributing to the increase in food spending since the 1980s.
Users should be cautious about employing these numbers to infer how retail prices might change with a change in farm prices. For example, if the farm share is 20 percent and farm prices rise (fall) by 10 percent, then one might expect retailer prices to rise (fall) by 2 percent, especially in the short run. The short run refers to the immediate time period during which members of the food marketing system cannot alter production and business practices. Even in this time period, existing research cannot say whether a complete pass-through of the farm price increase (decrease) is likely to occur. However, in the long run, as firms have time to adapt to farm price changes, research shows that retail prices are likely to change differently than in the short run.
|
